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Estate Tax Rule Change


Treasury’s proposed regulations under Section 2704 eliminate or greatly reduce the discounts for lack of control and lack of marketability for “family related entities” and will discourage families from continuing to operate and build their family businesses and pass them on to future generations or others.

How assets are valued makes a dramatic difference for gift and estate tax purposes. For closely-held businesses, there are few if any comparable sales and no ready markets, so their value must be determined by estimating the likely sale price between two willing and unrelated parties. A variety of factors are considered, but two key discounts often apply: (i) Lack of Control - If the interest being transferred is not a controlling interest, it is worth less and (ii) Lack of Marketability - If there no ready market for the interest, finding a willing buyer may be difficult and the asset is worth less.

Under current law and established legal precedent, these discounts are often 30 percent or more of the asset value and reflect the underlying economic reality that non-controlling ownership interests, and assets without ready markets have lower values. If finalized, the regulations could thus increase estate and gift tax liabilities by 30 percent or more on family-owned businesses, resulting in fewer family businesses surviving from one generation to the next.

Since “non-family related entities” can still take the discounts, these changes will unfairly discriminate against families in favor of non-family related entities by creating two completely different ways in which family and non-family entities are valued.

Anticipated Timetable

August 2nd - Rule Proposed
November 2nd - Comment Period Closes
December 1st - Treasury Hosts Public Hearing
January 20th - End of Obama Administration
30 Days After Publication - Rule takes effect

The Rule could be thus finalized as early as January 2017.

Talking Points

  • These proposed changes to Section 2704 will make it more difficult for families to offer ownership to family members who are well positioned to continue to operate the business after the founder of the business ceases to participate for whatever reason.
  • The proposed regulations will harm the American economy. Family businesses employ millions of people and take up a huge share of the economy. Treasury should encourage the creation and growth of family businesses and not discourage them by unfairly handicapping them.
  • The Treasury Department and the IRS are creating an unfair and discriminatory competitive advantage for “non-family related entities” at the expense of family related entities.

Additional Resources

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“The MCAA is truly trying to move the masonry industry forward.”

Thomas Cummer
Cummer Masonry, Inc.
MCAA member since 2003

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